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Why ERP is Alive and How it Can Get Well

The Economist Magazine style guide has some great advice for writers: simplify then exaggerate. This same advice applies to marketing as Tien Tzuo masterfully showed in an article in Forbes entitled “The End of ERP”. In this article Tzuo simplified (ERP is inadequate to support subscription service offerings) and then exaggerated (ERP is dead) and attracted more than 130,000 readers.

Tzuo is clearly good at this. As CMO of of Salesforce.com, one of his previous jobs, he helped created the simplified/exaggerated “No Software” message.

Tzuo continues to show his talent for technology analysis and marketing as CEO of Zuora, a Software as a Service infrastructure provider for subscription offerings. I found his view of the impact of the subscription economy persuasive and wrote an article about how business applications need to learn from the principles Zuora and other companies are building into their software. (See: “How the Subscription Economy will Change Your Business Applications”).

But what is getting lost in Tzuo’s analysis is that ERP is not dead. There is a continuing need for tracking and automation of the transactional core of the business. What is ERP anyway but the common tasks that apply to most businesses? Accounting, inventory, financial reporting, budgeting, financial management and controls, purchase order processing are not going to go away. We all need these functions to run our businesses. It makes sense that they are delived as a configurable product. I’m sure Tzuo doesn’t intend that we all write these applications from scratch. (For another take on why ERP is not dead see “ERP Isn’t Going Anywhere” from Kevin Parker, CEO of Deltek.)

What Tzuo rightly points out that the way these processes are implemented in current ERP systems don’t allow for many of the properties required by software that supports the subscription economy. (See my article for 7 characteristics that modern business applications should copy from subscription software.)

For example, Tzuo argues that modern software must always be in a consistent state that reflects the current condition of the business. In other words, in today’s world, you don’t want to have to wait until 7 days until after the end of each month to know what your financial condition is. You want to know right now, and that’s the way the Tzou’s product, Zuora, was built.

But let’s take a step back and ask three questions:

Does every business need real time financial information?

Is there a way to achieve real time financial reporting with ERP?

Can every business achieve real time financial reporting?

With respect to question 1, Tzuo argues that subscription offer on the rise and many companies will want to add the subscription model. He quotes a Garter Group Report to justify this: “by 2015, 35% of Global 2000 companies with non-media digital products will generate incremental revenue of 5% to 10% through subscription-based services and revenue models.” So, in other words 65% of companies won’t be using subscription models and of the 35% that do, 90% percent of their revenue will come from other sources. I suspect ERP will play a role in delivering those products.

So, more businesses will need real time information to support their subscription models, but not every business will. When they do, I argue that there are many ways to achieve it, which brings us to question 2.

Let’s say that real time financials become important in a particular business. Is the only way to get a real time view to use a SaaS application like Zuora? I say no. Modern business intelligence and performance management systems can capture information and present a real time view, even if the accounting module hasn’t closed the books. Will that real time view satisfy accountants and regulators? Probably not, but I suspect that Zuora’s real time view is used for operational purposes not for statutory reporting. The point is that there are many ways to get a real time operational view when it is worth having.

Regarding question 3, remember, you can only have real time financials when you have the information captured in real time. SAP’s Business One product for small business, for example, is an on-premise system that offers a real time view of the state of a business. In many businesses, the information is not available in real time. If it were, would it be better of SAP’s flagship ERP product worked that way? Absolutely. Is it possible to have real-time financials for a multi-national, multi-divisional, multi-language, multi-regulatory, multi-currency organization? No. The real time view is only needed at the level of the operational manager who is focused on one product or business unit. What about consolidating all of the information for regulatory reporting? Does that job go away. No. ERP must do it.

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Great article on ERP and the future of the ERP. ERP is not dead , dying or on the decline. ERP as rightly said in the article is a set of everyday functions on a platform .The ERP will undergo few natural evolutionary changes such as moving to the cloud.Just read an informative whitepaper, Choosing the right ERP solaution for your organization @ http://bit.ly/zSEOXf

Thank you for an article that is not “simplified and exaggerated” as you put it. I read articles regarding technology on a daily basis and too often it seems as if the authors confuse the means with the end. It does not matter how “cool” or “cutting edge” something is if it does not achieve it’s purpose. The purpose of ERP is to be an organization’s spine; ERP manages and connects the many links in the chain from sales all the way through to accounting. Many tools used in comparisons with ERP do not share much less achieve this purpose, though proponents will go on an on about how cool their new doodad is. It would be nice if more people who are not selling ERP software would quit pretending they are, and it is refreshing to read an article that does not compare apples to oranges and make a grand conclusion out of it.

ERP being a first step to an organizational process automation can never be dead. The requirement of ERP, as we have seen from its emergence has moved from sophisticated and large companies to tier x companies and the need clearly is more and more with increased movement from manual to increased accuracy and metrics. Two ways of benefiting from an ERP include 1. partial process automation while managing other variations through manual interventions. 2. Scalable model dependency on ERP where the CRMs and Business Intelligence is built on the ERP to gain exponential and real benefits that the sophistication promises.

The second type is the real RoI that promises a longer life to the ERP oriented processes. It is not just about the software with a database storage but the mindset and way of thinking that is enabled by an ERP system. Any BPM , BI or “Big data” initiative today has its baseline grounded through an ERP oriented line of thought to business sustenance and excellence, especially when looked at from a global business presence perspective.

In my over 15 years of experience in software, over half of which in ERP, one thing has stayed constant: ERP continues to be marketed and sold at an aspirational level (e.g. “Analytics delivered by ERP can take your company to the next level”) but implemented and supported at a mundane level (e.g. “Let’s focus on generating the invoice correctly first and worry about metrics and other ‘nice-to-haves’ that can follow in the second phase”). More than anything else, this explains to me why, as the article says, a lot of companies still don’t get ERP despite using it for several years. According to anecdotal evidence, while 70% of Fortune 500 companies have ERPs, over 90% of them still use Excel to prepare reports for their board of directors! Technically, SaaS is just a different method of deployment and doesn’t seem to threaten ERP. But, with its business model that is based on monthly renewals – or terminations – SaaS can be a game-changer for how ERP and other software products and designed and implemented going forward.

Cloud computing is here to stay, but what does that mean for those who sell and implement ERP solutions today?

First, it means that there is a new way in which business software solutions are being purchased and consumed, and that means resellers need to pay close attention to the way they run their business. Secondly, it means that if ERP companies wish to remain in the game, they need to make some significant changes.